Will Govt Bond ETF be successful?

Bond exchange traded funds (ETF), similar in structure and intent to the stock ETF, could debut soon in India, where the government is seeking to enhance liquidity in debt investments and expand the scope for retail savings.

New Delhi had floated a Request for Proposal (RFP) to appoint advisors for creating the bond ETF market, which is now beginning to rival stock ETFs in their depth and maturity overseas. The bidding closed May 16.


Among the likely bidders is the Mumbai-based Trust Capital, three people familiar with the matter told ET. The Department of Investment and Public Asset Management (DIPAM), which invited the tender for appointing the advisor, did not confirm the number of bidders in the race. Sources, however, said that Trust Capital may have been the only company to file the RFP before the deadline.

Emails sent to Trust Capital and DIPAM seeking their comments remained unanswered until the publication of this report.

“The complex regulations are to be blamed if the response is not so good,” said one of the persons cited above.

Some mutual funds and domestic investment bankers were eager. So were some bond houses that met DIPAM officials to seek clarifications on bidding eligibilities. Many entities with multiple financial services on offer, however, did not find it an attractive option.

“If you bid for the role of an advisor, you cannot don the role of a fund manager at a later stage,” said a domestic investment banker.

One of the objectives of the bond ETF market is to cater to the central public sector enterprise/public sector bank/public sector units by leveraging their aggregate strength, said the RFP.

ETFs track any particular index, creating a pool of funds from a bunch of bonds issued by public sector entities.

A year earlier, India had introduced Bharat 22 ETF to achieve disinvestment targets. It is an open-ended ETF that will invest in similar composition and weightages as they appear in the Bharat 22 Index.

Bond ETFs permit both retail and institutional investors to take exposure in a larger pool of fixed income securities than they normally could have access to. Multiple bonds are clubbed in smaller chunks defined by the ETF price and size, catering to all appetites.

Bond ETFs, perceived to be helping enhance debt-market liquidity, have gained currency in G-7 countries.